We were informed during the last weekend that Ali Mansoor, Financial Secretary (FS) since 2006, had decided to give up the top job at the Ministry. This decision came in the wake of the Annual Meetings of the IMF/ World Bank in Washington DC which are due to take place this week. The FS is normally part of the Mauritius delegation to those meetings. He has stated that his decision to quit is motivated by family reasons as well as an offer made to him by the IMF for him to assume a directorship at the African department of the IMF as from January next year.
There have been comments on the abrupt nature of the decision taken, barely a month before the Budget Speech. Some in the media have attributed this departure to a tussle that has been going on for some time between the Governor of the central bank and the FS regarding the monetary policy stance to be adopted on which the two protagonists are publicly known to have been at loggerheads. As expected, the Governor has, on concerns about prevailing inflation and expectations of inflation, been fighting it up not to drop the interest rate, at least not to keep it at the low level it has been brought down to by successive decisions of the Monetary Policy Committee. On the other hand, the Ministry expressing its stand through the FS, has kept advocating a low interest rate regime as a means of sustaining economic growth.
It is not unusual for conflicting situations like this to occur. The last Governor of the Reserve Bank of India (RBI) fought to the very end the suggestion that, unmindful of the need to control inflation, the central bank should bring down the interest rate at the behest of the Ministry of Finance of India. Privileging the central bank’s concern about inflation, he remained adamant that the burden of adjustment for insufficient economic growth was not on the interest rate factor but rather on fiscal policy. This battle of ideas can surprisingly be a much civilised discussion so long as hubris does not set in. There was nothing personal in the hot discussions which ensued even though the Governor of the RBI pointedly drew attention to policy initiatives which ought to be taken by the Ministry instead of leaning on the interest rate for results.
At the end of the day, low inflation with economic growth is an objective shared by both the Ministry and the central bank. It’s finally a question of which policy tool to employ to get to the twin objectives simultaneously or in a reasonably foreseeable future. Obviously, one cannot use a scythe to fell down a tree: an axe would be more relevant. At best, the scythe could clear the shrubs surrounding the tree to make it easier for the axe to play its role. But using the scythe for felling the tree would risk making it a blunt instrument and barely usable in future for the real purpose for which it is designed. While a low interest rate regime could spur economic growth in the short term, it could also invite exaggerated borrowing from financial institutions, putting both borrowers and lenders at serious risk, especially if the debt eventually proves uncollectable as happened with the destructive subprime crisis of the US creeping into Europe.
The outgoing FS has, in his statements following his departure from the Ministry, spoken in favour of differences of opinion among the major decision-makers of the country as to which policy stance to adopt. This is no doubt how it should have been. No matter who are heading both the Ministry and the central bank, as a country we need people who are strongly opinionated about the choices they propose, based on received economic theory and firmly grounded in facts Consider the recent case of appointing the head of the American Federal Reserve Bank. The two candidates who were lined up for the post, Larry Summers and Janet Yellen, not only have the best credentials America has on offer for such a position; they could fit anywhere else in the world by sheer reason of their intellectual stature and respect they command at that level of decision-making. Larry Summers having voluntarily decided not to stand, it is most likely Ms Yellen would be appointed subject to approval by the Senate. America wins.
In our case, the decision has been taken already to appoint Mr Dev Manraj to be the next FS. The latter is a former FS who was heading the Ministry in the 1990s. He has a stock of wide-ranging experience and should therefore be able to handle skilfully and more humanely the responsibilities being conferred upon him. He is reputed as someone who makes things happen after listening to all sides. Lately, he has been looking into several sensitive matters from the position of Senior Adviser at the Prime Minister’s Office, including the Errors and Anomalies chapter of the last PRB report, recommending on the setup of the University of Mauritius and chairing the National Energy Policy committee. He is therefore well in the picture despite his long absence from the Ministry. He knows the strings to pull up to get decisions translated into action, especially so in a difficult domain such as the public sector in which red tape can bounce back fairly quickly.
The public has for quite some time been associating the decisions taken at the level of the Ministry of Finance as being inspired by the right wing. Several welfare measures, including empowerment of the less well-off members of society, have been taken in the interval however in an attempt to change this perception. Nevertheless, due to continuing battles such as about the interest rate between the Ministry and the Bank of Mauritius, legislation curtailing of employees’ rights, growing inequality in the population, etc., the perception of one-sidedness of the Ministry has persisted.
It may well be that corrective actions have actually been taken to tone down the feeling of fiscal repression, ( e.g., the NRPT which was later withdrawn, tax on interest income but not on dividends, low income exemption threshold for individuals but uniform 15% tax on corporates) that was created in 2006 but the message has not actually gone through. With a new FS, the possibility to think out of the box has become a reality. The Ministry could take actions in the next budget to confirm that, while not stunting the growth prospects of the country, it has ceased to ride roughshod on the lower and middle classes. There is much work to be done to change the perception and make the population accept the changes that will be proposed with the next budget. For, the priority of priorities of the country at this stage is to set up economic growth once again on an upward path so that when the world economy turns around next year or the year after, we should be in good enough shape to pick up not only the low-lying fruits but also those which are higher-up and achieved only by dint of much effort.
* Published in print edition on 11 October 2013
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